ALEX BRUMMER: The wheels of British financial justice turn too slowly

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The wheels of British financial justice move at a snail’s pace. In the US, the Securities and Exchange Commission brought the first charges against Elizabeth Holmes, the founder of Silicon Valley start-up Theranos, in March 2018.

Federal prosecutors brought the first criminal charges within a year, although court hearings were postponed several times because of Covid.

Nevertheless, the whole affair was largely done and dusted, after a jury trial, by January this year. All that is now awaited is sentencing for Holmes on four federal counts of fraud. 

Some two-and-a-half years after the implosion at Neil Woodford’s investment empire around 300,000 investors are still waiting for answers

Contrast this with the UK. An FCA investigation into management culpability for the near collapse of HBOS in 2008 was completed in 2015. But it has been tied up in legal wrangling since then.

A separate inquiry into who, at the top of HBOS/Lloyds, knew what and when about large-scale fraud at the bank’s Reading branch is still in abeyance. 

This is despite the fact that fraud convictions in the £245million case were obtained in 2017.

Some two-and-a-half years after the implosion at Neil Woodford’s investment empire around 300,000 investors are still waiting for answers as to who was responsible for the collapse and failures in the regulation.

In a procedural note, City regulator, the Financial Conduct Authority, has told the Treasury committee that after seeking ‘45 information requirements’ it completed most of the investigatory work by the end of 2021. 

If anyone involved might have thought that justice and potential compensation for their lost savings could be around the corner, there will be disappointment.

Woodford is said to be advising Acacia Research on life sciences investments. Those of us exposed to his Patient Capital fund, now managed by Schroders and more than 60 per cent down on its asset value, will wonder how on earth that is permitted. 

There are also questions to be asked about investment platform Hargreaves Lansdown which exposed around a quarter of its clients to Woodford funds. 

Authorised manager Link was meant to be there to protect savers’ interests, but clearly fell short.

No disciplinary action is possible yet because of the need for counsel to evaluate the evidence. It will then require legal analysis to assess what regulatory action, if any, is required. 

These steps are ‘not a public process’. Beyond that, there are many hoops to be passed through before matters reach a Regulatory Decisions Committee and eventually the Upper Tribunal, which has court-like powers.

As we know from HBOS and other inquiries, legal hoops are formidable, and armed with the help of City law firms the opportunities to obfuscate and delay are enormous.

One way around all of this (used in the case of RBS) is for the Commons to take control of the FCA’s report and publish it using parliamentary privilege. 

Known facts are then put into the public arena. It provides a great opportunity for Treasury committee chairman Mel Stride to align himself with damaged savers.

Cleaning house

Auditors KPMG have been involved in so many accounting pratfalls, ranging from the Co-op bank debacle to the Fifa bribery scandal, that it is hard to keep track. 

Its position as a Big Four audit firm only remains intact because there is so little competition in the sector. 

Nevertheless, it is refreshing that UK chief executive Jon Holt decided that the best response to its mishandling of the audit of collapsed construction and engineering group Carillion is to make a clear breast.

Rather than tie up the Financial Reporting Council tribunal in legal knots, he acknowledges that the case against his firm, its partners and some junior staff is both ‘disturbing and upsetting’. 

Instead of KPMG partners drawing attention to bad behaviour among others – the real job of an audit – the mistakes were allowed to take place with disastrous consequences for jobs, customers and shareholders.

Restoring KPMG’s reputation will be a long-haul. Recognising the scale of wrong-doing will help.

Price right

If the private-equity backed owners of Morrisons and Asda were hoping to escape wounding grocery price wars in 2022, they will be disappointed.

German-owned Aldi has thrown down the gauntlet by promising it ‘will always offer the lowest prices for groceries, no matter what’. 

That is terrific for consumers but not for owners loaded up with expensive short-term debt.

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